Telkom is expected to post flat revenue and focus on new chief, Vodacom stake

Telkom is expected to report flat fixed-line revenue growth later this week and investors will focus on who will head the company and whether it plans to sell its 50 percent stake in Vodacom.

Analysts expected state-controlled Telkom to post headline earnings a share of about R1 820.1 for the year to March, up 4.6 percent on the year before, according to Reuters Estimates. Results are due tomorrow.

But while Telkom’s core fixed-line business is faltering in the face of tougher competition, some analysts are betting that the company will sell its stake in cellphone operator Vodacom to joint owner Vodafone – a reason to hold on to the stock.

Rhys Summerton, a telecommunications analyst at Citigroup, said: "The long-term fundamentals in the fixed-line business are under pressure, but you own this stock for the dividend and for the inherent value in Vodacom."

Telkom has said Vodacom, which has already reported a 23 percent rise in full-year operating profit to R10.9 billion, was not for sale. Vodafone said on May 29 that it was happy with its stake and was not aware the other half was for sale.

But speculation surfaces regularly that Telkom will sell the stake to Vodafone, which is keen to expand in emerging markets, and use the proceeds to buy another cellphone firm – possibly the third-ranked Cell C.

Citigroup values the stake at up to R75 billion, which would account for the lion’s share of Telkom’s current market value of R97.4 billion. Summerton said the joint ownership was stifling Vodacom’s growth in Africa and the cellphone firm could push into new markets more quickly with only one shareholder.

"Telkom and Vodacom are holding each other back and they are competing over the same data market at home," he said.

Rajay Ambekar, Cadiz African Harvest portfolio manager, said Telkom needed a strategy. But if there was an attractive price for the cellphone operator, the fixed-line operator probably would sell its stake.

Renaissance Asset Management director Khulekani Dlamini said that in absolute terms, it made commercial sense for Telkom to sell its Vodacom stake to realise value.

But any decision on Vodacom will probably depend on who is named as Telkom’s chief executive, after Papi Molotsane unexpectedly quit in April under a cloud of criticism from shareholders and the government.

Former chief operating officer Reuben September was named interim chief executive. Many analysts expect him to stay, even though some say the company should recruit a boss from abroad who would couple telecoms experience with a stronger commercial vision.

"They need someone with commercial understanding and September may be too much of a technical man," said a London-based analyst. "But they also need someone who can play the political game and a foreigner would create problems in terms of black empowerment."

Investors said they would be looking for details on how the company would combat tougher competition.